Africans investing in Africa

After a day and a half of high-level discussions at an Africa investment conference, Arnold Ekpe, non-executive chairman of financial services holding firm Atlas Mara and former chief executive of Ecobank, sounds slightly exasperated. “African countries are not doing enough for themselves,” he says. “I have been going to conferences like this for 20 years. We have to move from talk to action.”

An elite band of companies are doing just that – with a toolkit that helps expand their operations across African borders. But Ekpe argues that Africa needs many more champions like Dangote Group, MTN and ShopRite.

Aliko Dangote, the founder of the Dangote Group, also regularly bemoans the lack of inter-African business activity. He too told the assembled investors: “We need to develop like China or Japan did. They created wealth themselves.” That is easier said than done.

It’s not the matter of growing the footprint or growing the empire. It’s really a matter of generating additional value for shareholders

Many of Africa’s 54, often small, countries, lack the skills and resources of sizeable countries such as China. Intra-continental trade also accounts for just 12% of total trade in Africa. This is low by global standards, even acknowledging the fact that it does not account for informal trade. Africa’s statistics hide regional differences too: East African countries do more trade between themselves than their southern or western neighbours.

The reality is that for the likes of Dangote, investing in Africa is not easy. Terence McNamee, deputy director of the Brenthurst Foundation, says there are many stumbling blocks: “There is a facile impression that cultural affinity – the ‘Africanness’ of a company – would count for something across borders, whereas it is not really the case. Very often, it [is] even the opposite.”

Trade barriers

The reasons for the low level of intra-African trade and investment are numerous. They include poor infrastructure, tariff and non-tariff barriers, a lack of financing, currency controls and restrictive visa policies. Cement magnate Dangote points out that as a Nigerian, he would need 38 visas to visit all 54 countries in Africa, substantially more than if he held a United States or British passport.

The picture is just as depressing for goods: it takes anywhere from nine to 17 days to move freight just 1,000km from Tema in Ghana to Ouagadougou in Burkina Faso. Studies have also found that a container spends on average about 16 days in African ports, compared with three or four in most other international ports.

What is galling, explains Ekpe, is that little has been done over two decades to overcome these barriers. “What we need is free movement of people, a free trade area and free convertibility of currencies,” he says. “It’s nothing new.”

The reason it is not happening is fear – of surrendering power, of being swallowed up by a more powerful neighbour and of people being displaced by foreigners. This over- rides any notion of pan-African solidarity, says McNamee. “With the exception of the East African Community (EAC), the rhetoric [on regional integration] is way ahead of the reality on the ground. I think a mindset change must occur.”

Ekpe concurs. His first challenge when he became chief executive of Ecobank in 2005 was to convince the board to embrace the concept of building a pan-African bank. “They liked the idea. They just didn’t think it could be done,” he recalls. But progress is being made. Through improving infrastructure and border processes the EAC has reduced the time it takes to get a container from Mombasa to Kigali from 26 days to just five.

Private sector growth

Governments must also encourage private-sector growth if they want to nurture more African champions, argues McNamee. He says they should focus on improving the conditions for doing business rather than trying to get involved in every sector. Andrew Alli, chief executive of the Africa Finance Corporation, agrees: “Governments hold on to projects such as air- ports, ports and power generation because of national pride and security concerns, but they should push more projects into the private sector. There is so much to do.”

So how have African champions been succeeding? It comes down to understanding the local context. Gavin Dalgleish, managing director of South African agribusiness Illovo, explains: “In Africa, you take a one-continent approach at your peril.” Illovohas developed processing operations in six countries, and Dalgleish says that the key to their success has been immersing themselves in each market. “You try to develop a local flavour to your business rather than continue to be a South African company,” he says. “In Zambia, for instance, no one talks about Illovo. It’s Zambia Sugar.”

This commitment to markets involves a range of instruments: minority shareholding, employing local staff, contracting local service providers and following national agendas. “In Malawi, food security is a big issue so we got behind initiatives to grow maize. In Zambia, the key thing was developing local supply chains,” Dalgleish adds.

This is especially important to overcome ‘legacy perceptions’ about South Africa. “We’re not always the most popular investors on the continent,” he says.

Stereotypes are a recurrent theme in studies: South Africans are perceived as arrogant and Nigerians as unreliable. And while West Africans tend to associate local goods with poor quality, in East and South Africa seeing ‘made in Kenya’ or ‘made in Zambia’ is a cause for celebration.

Being able to navigate, and ultimately confound, stereotypes can mean the difference between making it and failing. Woolworths, for instance, had not anticipated that Nigerians would snub South African goods for European brands. Similarly, neither Score nor ShopRite has managed to crack the Tanzanian market, which is dominated by local and Kenyan players.

Anthony Haggar, chief executive of South Sudan’s Haggar Trading, says that understanding cultural differences is paramount: “For the Sudanese, the highest honour you can bestow on someone is to invite them for a meal at your house. If you are aware of this and you accept – you should accept! – to have dinner with the person, it will enhance the trust between you.”

Curiously, the cultural differences associated with different language blocs, as well as differences in legal systems and bureaucracy also seem more of an issue than the languages themselves. Getting lost in translation did not seem to faze Ecobank, which invested in language courses and translators.

Due diligence

Both Haggar and Dalgleish stress the importance of due diligence before making investments. Haggar says he spent 18 months making monthly trips to Ethiopia to meet stakeholders and get to know the country. For their part, Illovo executives spent considerable time and money researching a greenfield sugar project in Mali, only to see it fall through with the 2012 coup.

Better due diligence might have prevented the flop of Kenya’s M-Pesa mobile-money platform in South Africa. It came up against strong competition from banks that had already developed services for low-income customers.

Despite Illovos’s Mali setback, Dalgleish says that they “remain resolute in their desire to invest in Africa”. As the stellar rise of African champions suggests, it makes good business sense too. Illovo’s African expansion has driven the firm’s growth. The demand for sugar has been “about 2% for decades glob- ally, but it’s about 3.2% across the continent. And in some markets, it’s better than that,” says Dalgleish.

Into new regions

Moroccan companies such as national airline Royal Air Maroc, telecoms operator Maroc Telecom and banks such as Attijariwafa Bank and BMCE Bank of Africa have made major forays across West Africa. The region now generates up to 30% of those banks’ revenue. Importantly, the decision-making process has not been blindly ambitious. As Attijariwafa Bank co-chief executive Ismaïl Douiri puts it: “It’s not the matter of growing the footprint or growing the empire. It’s really a matter of generating additional value for shareholders.”

Africa’s potential could convince African companies to invest on their continent, but Ekpe argues that there is more to intra-continental investment than cashflow. “Foreign investment has never developed a country. It has helped, but in the end it comes from domestic investment and domestic saving mobilisation,” he says. “You cannot outsource development.”

Haggar likes to call it ‘Africalism.’ “The ownership of the means to produce and distribute wealth should be African. We are too exposed to the tail- and headwinds of the rest of the world. We have everything to offer on the continent. We [could] be completely self-sufficient if we traded amongst ourselves and [had] investors.”